17 Sep

What is an appropriate ‘price reduction’ for a curtailed holiday?

Joanna Kolatsis, Director, Themis Advisory has written for the forthcoming tenth issue of Travel Law Today which will be launched at next week's Virtual Travel Law Seminar on Wednesday 23 September. 

No one could have conceived a few months ago that the first real test of the Package Travel and Linked Travel Arrangements Regulations 2018 (PTR) would be a global pandemic in the shape of COVID-19. But the pandemic has truly tested several provisions in a way that no travel legal professional could ever have anticipated. 

The issue of ‘unavoidable and extraordinary circumstances’ and refunds became a heated debate at the outset of the pandemic. But for those who were already midway through their trip, the issue of ‘partial refunds’ also became crucial.  

There are three specific areas in the PTR that give rise to an ‘appropriate price reduction’ when considering the impact of the pandemic:

-    Regulation 11(7)(b) – iteration of the package contract terms;
-    Regulation 15(9) – responsibility for the performance of the package; and 
-    Regulation 16 (2) – price reduction and compensation for damages.

When the pandemic began, organisers were faced with the dilemma of reviewing individual travel arrangements to establish whether a partial refund would be due for curtailed trips. It is not clear what an ‘appropriate’ price reduction is as there is no prescribed calculation within the regulations.  This is also a point that has yet to be tested by the courts.

The analysis below is largely centred on the Foreign, Commonwealth & Development Office (FCDO) issuing advice against ‘all but essential international travel’ where UK travellers were encouraged to return home and curtail their trips, as opposed to border closures and local restrictions.   
Practical considerations for partial refunds
Flights and other modes of transport are a key consideration. Some operators were faced with the dilemma of either rearranging flights or other transport back to the UK at prohibitive cost or encouraging customers to make their own way home at their own cost. Whether an organiser can legitimately refuse to cover these costs will depend on whether carriage to and from the customer’s destination was arranged as part of the package. If carriage was arranged and you subsequently refused to bring customers home, it is likely that you would be unsuccessful in your attempts to resist any claims for reimbursement of any additional transport costs, or any unused portion of the original transport costs, as a result.  

Accommodation and other services arranged as part of a package are also a matter for consideration. In some cases, organisers have been forthcoming in providing partial refunds for the unused parts of the package. However, others have also maintained the position that the disruption was not of their making, they could not offer any alternative options due to government restrictions and that customers may be able to make a claim via their travel insurers. Whether or not this is a correct or valid argument will depend on whether insurance of this nature was in place and whether the pandemic was a trigger event for payment purposes. While it is entirely acceptable to request that a customer first attempt to make a claim via their travel insurers, it is evident that most insurance policies only provide cover for ‘non-refundable’ payments. Given the obligations under the PTR, many insurers refused to provide refunds, partial or otherwise, on the basis that the obligation for the organiser to refund is explicit in the PTR.  Similarly, where cover was available, some insurers have sought recoveries from organisers for payments made.  
If a partial refund is due, you must decide how this is calculated and on what basis.  Given the absence of any clear guidance on this issue, the general consensus is that this should be based on the net costs of the services and split proportionately across the duration of the trip, ie the net costs divided by the trip duration and then multiplied by any unused days. This would provide a percentage figure to offer the customer based on the sale price (not the net cost of the services to you). If the customer is able to use the original return flight/transport you would deduct this from the calculation. A very simple calculation would be:
Net costs:
Outbound flight: £300
Accommodation: £700 (£70 x 10 nights)
Inbound flight: £300
TOTAL net cost: £1300
TOTAL Holiday cost: £2000 (price paid by customer)

For example, if the package was cancelled after five nights, the customer would be entitled to a partial refund of five nights, in this case 50% of the net costs you have incurred (£650) resulting in 50% partial refund to the customer of the sale price (£1000) (which would exclude the return flight element unless they paid for a repatriation flight themselves, which may be subject to reimbursement).

Given the complexities the travel industry has had to navigate in dealing with the pandemic, and that we have no clear view as to when a return to travel without restrictions may properly resume, it is evident that we will have to deal with the issue of partial refunds for some time. As we experience a reopening of destinations, albeit with some restrictions locally or with reduced services, the issue of partial refunds remains topical if customers can travel but will not have access to the services they have booked and paid for. This may mean having to revisit the issue of costs if it is apparent that the services cannot be provided as booked and may have a significant impact on the package arranged.  Rather than face a cancellation, a partial refund or alternative options could be offered in an attempt to ensure the customer has the best experience that can be offered under the circumstances.  

While these issues remain untested in a legal environment, consumers are highly protected by the courts and it is unlikely that there would be favourable decisions for the industry in the event that requests for partial refunds are not properly reviewed and analysed. More importantly, do we really want the PTR to be tested in the context of a global event such as COVID-19? The main objective must be to retain customers while complying with the PTR in the most practical way, in order to restore consumer confidence wherever possible.